Bygones for Saigon

Investors can’t stay mad at Vietnam. Even after a downgrade last month by rating agency Moody’s, they’re willing to lend Hanoi dollars for less. Rising exports have helped restore reserves and avert a potential balance of payments crisis, while top officials have apologised for economic mismanagement. In a world awash with cash, however, investors are all too eager to forgive and forget.

For a country whose bonds are rated as junk, Vietnam doesn’t borrow like one: last week, yields on its 10-year US dollar bonds dropped to 4.18 per cent — the lowest level since they were issued in 2010. That’s just 2.5 percentage points above equivalent US Treasuries. The cost of insuring Vietnam’s debt has dropped to its lowest in two years.

That’s all the more striking because earlier this year Vietnam looked like it might need financial assistance from the International Monetary Fund. After years of overinvestment, corruption and half-hearted reform, Vietnam was hit by a correspondingly painful slump. Higher interest rates have lowered inflation to single digits from 23 per cent, but growth has slumped, with the government projecting GDP expansion of 5.2 per cent this year, below its target of between six per cent and 6.5 per cent.

Slower growth has cooled import demand, allowing rising exports of clothing and electronics to pull Vietnam to a rare trade surplus. But after expanding at an average of roughly 33 per cent a year between 2007 and 2011, credit has stalled, leaving banks saddled with nonperforming loans that likely exceed 10 per cent of their total loan books. The prospect of a government bailout prompted Moody’s to cut Vietnam’s rating to the same level as sovereign delinquent Argentina.

No wonder Vietnam’s prime minister felt obliged to apologise last month for mismanaging the economy. As far as investors are concerned, though, he needn’t have bothered. Vast money printing by central banks in the United States, Europe and Japan has sent a wave of cash searching the globe for higher returns. The influx has forced Hong Kong to fight to keep its own dollar from rising and prompted the Philippines to talk about imposing capital controls. When money is this hot, even Vietnam’s mistakes are quickly forgiven.